Investors can use simple analytical tools and data to evaluate the value of a company before making investment decision. FFG’s investment experts will conduct in-depth research and due diligence based on their understanding of the industry and macroeconomic forecasts, helping you to achieve your investment goals.
One of the most commonly used indicators for evaluating whether the price of a stock is reasonable. P/E ratio equals to stock price per share divided by annual earnings per share, reflecting the payback period of an investment. If assuming that the earnings per share of a stock remains constant, a stock with 10x P/E reflects an investment payback period of 10 years. As PE multiple is different among industries, investors should make a side-by-side comparison for companies within the same industry. Investors are also advised to use forward P/E for investment evaluation, which equals to stock price per share divided by forecasted earnings per share.
Commonly used in evaluating the value of a bank, P/B ratio equals to stock price per share divided by book value per share. If P/B is greater than 1, the stock is trading at a premium to its book value; If P/B is less than 1, the stock is trading at a discount to its book value, implying the stock price is relatively lower. As a bank’s assets are mainly composed of loans, book value can reflect a bank’s capital level and operating capacity, thus P/B ratio should be used for analyzing financial stocks.
PEG equals to P/E ratio of a company divided by its earnings growth rate. If PEG is less than 1, the valuation of a company may be undervalued; If PEG is greater than 1, the valuation of a company may be overvalued. As P/E ratio does not reflect a company’s future earnings growth forecast, PEG may make up the deficiency of using P/E ratio.
- Calculated by dividing total liabilities by total assets, Debt Ratio reflects a company’s financial leverage. During economic downturn, highly leveraged enterprises will be particularly vulnerable, so investors should pay attention to a company’s debt ratio.
- One of the important indicators of corporate profitability. ROE equals to after tax profits divided by net assets. Companies often reinvest earnings to seek for greater returns, ROE reflect the company’s ability to generate net profit using net assets.
- An important measure to access whether a company is worth investing. Dividend Yield equals to annual dividend paid divided by market capitalization of a company. Dividend Yield is used to compare the relative attractiveness of different interest-bearing investment products, such as bonds or bank deposits.